Scope and objectives of sales promotion - Marketing Management

In consumer markets, typically spend on sales promotion outstrips that of media advertising. It offers buyers a supplementary attraction as an incentive to engender an instant sale. As such it is regarded as a short-term promotional tool. The category of sales promotional tools includes some of the best known communications used in marketing such as coupons, self-liquidating offers, sample, bargain packages and giveaways which are explained later.

Scope of Sales Promotion

Scope and objectives of sales promotion

As consumers have developed a resistance to advertising, the use of sales promotion has increased. There is scope for a variety of activities with sales promotion and companies seek to create a promotion that singles it out from competitors. Advertising is partly restricted by the media that can be used.

The role of sales promotion is to encourage purchase by temporarily improving the value of a brand. However, it is part of the overall marketing mix and should tie in with advertising, product performance and pricing. The purpose of advertising is to improve dispositions towards a brand, while the objective of sales promotion is to translate favourable attitudes into actual purchase. Advertising cannot normally close a sale because its impact is too far from the point of purchase, but sales promotion can.

Sales promotion is often managed in isolation from other elements of marketing, because there is the need to gain shelf space through retailer support and in this context it is referred to as ‘the silent salesman’.

Collectively, these tools of sales promotion are often referred to as ‘below-the-line promotion’ which contrasts to advertising which, as discussed earlier, is termed ‘above-the-line’ expenditure. We now describe and discuss some of the more frequently used tools of sales promotion. With such variety of techniques, we need to be sure that the planning of sales promotion is systematic, so the key steps in planning sales promotion, along with appropriate techniques, are now discussed.

Planning sales promotion

The starting point is the identification of the target audience and the specific objectives that the sales promotion intends to achieve. Sales promotion can be aimed at one or more of the following:

consumers;

the ‘trade’ (retailers, wholesalers, distributors etc.);

the sales force.

In consumer sales promotion, typical objectives include encouraging customers to switch brands, to try a new product or encourage heavier purchase/consumption. Much of the literature on sales promotion relates to the use of this tool in markets for fast moving consumer goods. It is also prevalent and effective in industrial product markets, through the use of, for example, trade fairs, executive gifts and sponsorship. Sales promotion can play an important part in a market where competition is fierce and where relatively minor ‘incentives’ to purchase might swing the balance in favour of a particular supplier.

In trade sales promotion, objectives might include encouraging the trade to stock a new line or exhorting them to put more effort into selling a company’s brands to the final customer. Naturally, the trade will only be interested in doing any of these if it is profitable. Because of this, effective trade sales promotion needs to be supported by imaginative marketing, including sales promotion efforts to the trade’s customer. More importantly, the trade will need to be convinced that there is a market for the product.

Promotion aimed at motivating the company’s own sales force might include these objectives: stimulating greater effort to support a new product launch, encouraging the opening of new accounts and encouraging more visits per day. We see that achieving a given objective may require targeting sales promotion at various parties. Where this is the case, it needs to be effectively co-ordinated and controlled along with other elements of the marketing and promotional mix. The next step is to select the most appropriate and cost-effective sales promotional tools. There is little empirical evidence to suggest which tools work best in which situation and why. As an indication of the types of sales promotion tools available for each target audience, we outline the major ones used for consumers, trade and the field sales force.

Consumer sales promotion

Coupons The consumer must be in possession of a coupon or voucher of a particular value which can then be ‘redeemed’ at a local store to obtain the product or products named on the voucher at the usual price, less the value of the voucher. There is usually a deadline, and the offer often applies to a particular size in the range of products, which usually means that the consumer, in order to take advantage of the offer, must purchase the product within a shorter space of time than normal. The effect of this is to increase the rate of stock-turn for both the retailer and the manufacturer. A problem is that most redemptions are made by people who would normally have bought the product, so the true value of the scheme is difficult to ascertain, although in oligopolistic situations some might switch brands as a result of the offer.

However, where the voucher constitutes an introductory offer on a relatively new product, the ‘bargain’ element sometimes persuades consumers to switch brands.

Self-liquidating offer An example here is where a manufacturer of a brand of canned food purchases a quantity of kitchen knives from a supplier at a price of £1 per knife. The food manufacturer then ‘offers’ to sell the knives to the consuming public at the cost price of £1 or thereabouts, plus proof of purchase (e.g. the till receipt) from a particular size of the manufacturer’s brand of canned food. The advantage to the retailer and the manufacturer is that stock-turn rate is increased. The consumer benefits by being able to purchase the knives at trade price. This type of operation is termed ‘self-liquidating’ because capital used by the manufacturer in purchasing the knives is returned by the consumer.

Until relatively recently, manufacturers making such offers used to ask for proofs of purchase in the form of the actual label or a token from the can’s label. Legislation has now made this illegal, as the view was taken by the UK and other countries that the public should not be coerced into making purchases that they may not want, particularly in relation to those purchasing simply to take advantage of the offer. This, incidentally, is the main reason why there are now fewer consumer competitions on offer, as the rule now is that no purchase should be necessary to enter a contest, so manufacturers are naturally reluctant to offer expensive contests when they cannot directly see the benefits of such promotions.

Sampling Many manufacturers, particularly in the areas of fast moving consumer goods (FMCGs), give away free samples of their products. The sample is often of a smaller size than the normal pack size and it is hoped that customers will try the product, like it, and purchase it in future. Again, this is usually reserved for new entrants to a market and its advantage is that if consumers are given a sample of shampoo for example, they are unlikely to buy their usual brand until they have used the free sample, by which time they might decide to switch from their usual brand next time they purchase.

Bargain packages There are two main forms of this promotional technique. One is where the product is advertised at a particular price, but the pack is marked ‘50p off’ (known as a flash pack) which means that the purchase price will be reduced by that amount, but only on products so marked, which is another way of saying ‘while stocks last’. Many people take advantage of this type of offer, but they include regular purchasers, many of whom stock up with the product at the bargain price and do not purchase again until their stocks have run down. Legislation was enacted in the UK that makes it difficult for manufacturers to use this tactic as the problem is ‘50 pence off what?’ The fixing of retail prices by manufacturers is not legal as a result of the Resale Prices Act (1964 and 1976) and retailers can sell at whatever price they feel is appropriate. In 2001 Levi’s jeans were being imported by Tesco from South America from what is called the ‘grey market’ and sold in its stores at a discount.

Levi’s insisted that its retailers sell at stipulated prices and stopped Tesco selling its goods without permission through the European Court of Justice, who ruled that Levi’s had the right to stipulate who sold its products. In this way Levi’s was able to exercise control over distribution of its products and at what price. Manufacturers now find it easier to use tactics like ‘10 per cent extra free’.

The second form of this technique is where the offer is advertised as ‘buy one, get one free’ (BOGOF) which is two for the price of one. Sometimes, attached to the large size pack (of toothpaste, for example) is a smaller sized pack (termed a ‘limpet pack’). This method does not help the retailer so much as the manufacturer, who is able to increase turnover of large packs, sales of which may have been sluggish, and at the same time maintain the turnover of the smaller pack. Competitive brands of toothpaste are unlikely to be purchased by the customer until their stocks have run down.

Give–aways This is often aimed at the younger end of various market segments, and has been used extensively by breakfast cereal companies. Into every packet of cereal is put a small toy or gift in an attempt to use the influencing power of children.

Many FMCG marketers ‘bundle’ their promotional offers using a combination of promotional tools in a campaign, e.g. a two-for-one offer on a brand may be combined with a promotional offer of a free product with the purchase, such as free Bolognese sauce with a pasta purchase. Bundled promotional campaigns are successful in persuading customers to purchase or switch brands, as they offer good value for money, although the can be expensive for the marketer.

Trade promotions

Frequently used trade promotions include:

Discounts/cash allowances: a percentage discount or cash allowance given for each bulk case purchased;

Additional products with order: extra products given with each unit ordered e.g. if a case of 12 is purchased, one extra case is given free (colloquially called a ‘baker’s dozen’);

Merchandising allowances: financial allowances to a retailer for featuring and selling the manufacturer’s products;

Advertising allowances/co-operative advertising: compensates retailers for featuring a manufacturer’s products in a newspaper advertisement featuring the retailer; alternatively, the supplier may organize collaborative advertising with the trade.

Exhibitions: in some trades are almost obligatory. A well known example in the UK is the Ideal Home Exhibition, which is held annually. It features all possible goods which can be used in a home, and exhibits ‘model homes’ which are fully furnished and can be visited and inspected.

Another international example is the annual Frankfurt motor show.

Many exhibitions are on an industrial scale, including examples like the Motor Show, the Office Equipment Exhibition and the Hardware Trades Fair. Many of these exhibitions are mounted solely for the trade and the public are not allowed admittance.

Sales force promotions

This is a popular area for the application of sales promotional techniques like sales contests, bonus prizes and sales incentives and gifts.

Appropriateness of sales promotions

The most appropriate tools in this context vary according to type of product market, sales promotion objectives, target audience and the emphasis of marketing strategy, e.g. a ‘push’ versus ‘pull’ strategy. Often consumers, trade and the sales force will be targeted, so it is important that multifaceted campaigns are well co-ordinated.

Before a full-scale sales promotion is launched, as with advertising, it is advisable to pre-test the promotional vehicles selected. This can be done by using focus groups, selected in-store tests or fullscale test marketing. If testing is successful, indicating that the sales promotion will achieve its required objectives, a full-scale campaign can be implemented.

An important factor in assessing the success of a sales promotion campaign is the effect on sales which should be compared with the costs of the campaign and alternative ways of spending this budget. In measuring the sales effectiveness of such a promotion, it is important to monitor sales over a longer period than the duration of the campaign. This is because there can be a ‘lagged’ effect. If the promotional campaign has been aimed at generating a short-term increase in sales and market share, any such increases will often be followed by a downturn in sales and market share compared to immediately before the campaign. This drop is due to customers having stocked up as a result of an effective sales promotion campaign. After a time, sales will return to normal, albeit at a new and hopefully higher level than before the campaign. A complicating factor concerns what is known as a ‘lead’ effect which is where, in anticipation of the sales promotion, customers delay purchases they would otherwise have made. Similarly, salespersons may hold back on selling effort if they expect a sales contest with prizes to be introduced in the future. Such factors add to the need to evaluate and control sales promotion.

Developments in sales promotion research and practice

Sales promotion is constantly being researched and techniques are being developed and used alongside traditional methods. Some interesting developments are: In-store sales promotion: promotional kiosks: In-store sales promotions have traditionally used techniques like leaflets, demonstrations and merchandising. Allied to developments in IT, promotional kiosks have been developed. These are in-store kiosks where potential customers are presented with visual and verbal information regarding products in the store, their features, uses, unique selling points and stock availability. Interactive video is used in these kiosks. Advantages for in-store kiosk systems include:

They provide a means of showing an extended range of products.

Customers can consider alternatives if desired items are not in stock.

The customer can browse through a range of products and pay for specific products in stock.

They can be used to offer a 24-hour ‘through-the-wall’ shopping service like automatic tellermachines that are used for banking services.

A variation is touch screens used in large grocery supermarkets. Touch screens are located in the entrance foyer of the stores and are activated by customers swiping their loyalty cards through the sensor. Having done this, the customer is able to trace through promotional offers in the store on that day. The use of customer loyalty cards, backed up through the database system, enables the promotional offers displayed to be to a degree tailored to the personal shopping profile in terms of product and brand choice of the individual customer. If the customer is interested in any of the promotional offers on the screen then he/she presses the screen, and the appropriate promotional coupons are issued.

Packaging design: This is powerful area of promotion. Innovative packaging design is able to demonstrate market share and profitability improvements for the marketer. Companies are turning their attention to the potential for this below-the-line promotion element of marketing. Blair and Rosenburg have shown the potential impact of effective packaging design. They cite the effect of a redesigned package for McVities Jaffa Cakes. When this long established product was languishing in the market, the company rejuvenated the product packaging and market share increased rapidly. In the UK a reform to the Trademarks Act has allowed shapes, sounds and smells to be registered as trademarks. The large number of applications is testament to brand owners’ perception of the need to redesign packaging and to protect this as quickly as possible.

Point of sale material and in-store merchandising: Trends in the use of sales promotions in the communications mix is recognition of the importance of point-of-sale promotion (POS) and in-store merchandising activities. Increasing power of retailers and the ensuing fight by manufacturers for limited shelf space has made this activity more popular. Research has shown that up to 70 per cent of customers make their brand choices in store, so there is increased need to reinforce brand differentiation at the point of sale. As a result, in-store merchandising and POS are sophisticated and fully integrated into the promotional mix as a key part of a brand’s long-term positioning.

Increased use of information technology is having a major effect on the marketer e.g. more sophisticated and powerful databases enable better targeting of sales promotional campaigns. As mentioned earlier, Sainsbury’s stores use touch screens, enabling promotional offers to be linked to individual customer purchasing patterns. Many retailer loyalty schemes and the ensuing databases which stem from them, enable the marketer to identify targets for promotional campaigns. The effects of a promotional campaign can be rapidly and accurately measured and evaluated using developments in IT. This enables the marketer to evaluate a campaign while it is on-going and make any modifications to increase its effectiveness.

Emphasis on building loyalty: What has traditionally been seen as a promotional tool used to encourage short-term brand switching on the part of customers is increasingly being used to encourage and develop company, brand or store loyalty. The use of loyalty cards in retailing is one approach to using promotional techniques to engender customer loyalty. The growth in the recognition of the importance of customer loyalty is linked to the growth of relationship marketing. At this stage, it is sufficient to note that marketers are increasingly aware of the value of customer loyalty as a marketing asset and have put more effort into building and maintaining this loyalty. Sales promotion campaigns which lock in customers have increased in recent years. There is a danger, however, that customers become loyal to the loyalty scheme rather than to the marketer or the brand.

The introduction of a loyalty card scheme was a factor in Tesco becoming the largest grocery supermarket retailer in the UK. The loyalty card was introduced to enhance customer loyalty directly by offering rewards as an incentive to shop there regularly. Launched in February 1995 Tesco’s loyalty card was the first such successful scheme in the UK. Many competitors felt the scheme would be a short-term gimmick and customers would tire of it. Not long after, these competitors realized that the scheme was very successful and quickly moved to introduce their own schemes. Sainsbury’s said when it introduced its scheme in June 1996 that it was motivated by the perception of being at a competitive disadvantage without one. Asda introduced a scheme in 1994 which was not successful and discontinued it in mid-1999, to focus on its price rollback campaign to enhance customer loyalty.

Have One On Me

An example of how point-of-sale can be used as part of a planned promotional campaign is that developed by the design and promotional agency, The House, for J. D. Wetherspoon Company. The promotion was based on a 19-day beer festival which centred on introducing Wetherspoons’ customers to a range of beers they had not heard of, let alone tried, and hence to widen their tastes. A central facet of the campaign was the use of point-of-sale material designed by The House. This included a range of special 1⁄3 pint glasses so it was possible to try three different ales and still only drink one pint. In addition to these special glasses, staff wore special ‘taste three ales’ T-shirts. Special beer mats were produced for the bar areas and there were tasting notes on the beers on offer for customers to pick up and read. The result was success in which point-of-sale promotion was crucial.

Morrisons have not participated in loyalty cards as they believe that competitive pricing is more effective at retaining customers than a loyalty card.

Controversially, a considerable amount of sales promotion directed at building customer loyalty is aimed at children. Research in the UK reported in Marketing Week23 showed that children are susceptible to some sales promotional campaigns, especially for example the use of free gifts, Tshirts, models etc. This susceptibility is heightened where the campaign can be linked to a film character or theme. For example, some of the most successful sales promotion campaigns of the late 1990s made use of the interest in dinosaurs due to the popularity of the Jurassic Park series of films, the first of which was introduced in June 1993.

Direct marketing: This major element of the promotional mix is a relative newcomer. In some ways, direct marketing is not new: direct mail catalogue as a basis for marketing products has been around for many years. However, the use of these techniques has grown considerably in recent years. As with other categories of the promotional mix, direct marketing encompasses a plethora of different tools and techniques. As a promotional tool direct marketing can also be considered under the ‘place’ element of the marketing mix as a channel of distribution in its own right. Within the context of direct marketing we include telemarketing and electronic marketing (e-marketing) whose application is normally direct from Business-to-customer (B2C) or Business-to-business (B2B). Techniques of direct marketing have become increasingly important, considers these techniques and their application in a promotional context.